As I read this NY Times piece, I had a premonition. President-Elect Trump will play the following strategy in his attempt to make America Great Again. He will withdraw from the COP 21 Carbon Mitigation treaty and intentionally enrage the rest of the world. These nations will respond by enacting the carbon tariff that the NY Times piece discusses. As this tariff goes up, for profit firms that sell in the United States will have an incentive to bring their supply chains back into the U.S (to avoid the tariffs) and U.S employment for low skill guys will rise. These new factories will locate in depressed areas of the nation where land prices are low and energy prices and wages are low. Erin Mansur and I study this point in our 2013 paper.
Do you see the strategic interaction here? Game theoretic logic actually matters!
Who will lose if this dynamic plays out? U.S consumers will face higher prices and the U.S carbon emissions will actually rise. Will China keep its carbon tariffs in place if it is costing it export sales to the U.S?